Protecting your children with your estate plan

Most people plan carefully to meet long-term financial objectives, such as providing for their children's education and saving for retirement. However, many people put off estate planning or are not aware of its importance. Having a proper estate plan in place can help you protect yourself and your family during incapacitation, ensure accurate distribution of your assets to your heirs following your death, and help minimize unnecessary delays, fees and taxes. In planning ahead, having a financial strategy can help you take care of your children and their future. 

Appointment of guardians in a will

As part of your estate plan, you can use a will to provide direction for the distribution of your property at death as well as name guardians for any minor children.

• A guardian of the person cares for the minor on a day-to-day basis.
• The guardian of the estate makes the financial decisions.

These roles can be served by the same person or different people — it’s your choice. Conversely, if you haven’t made estate plan arrangements, the state’s laws will apply — which may not align with your wishes.

Every state has statutes dictating how assets will be passed after a person’s death, how to handle the decisions for an incapacitated person and how the court will select a legal guardian for your children. In addition to requiring additional costs and time as the court decides, this scenario can create uncertainty for your children and lead to potential strife within the family.

Use of a revocable living trust or testamentary trust

A trust offers potential benefits like control, incapacity protection, potential probate avoidance and tax-planning opportunities. You can choose to use a revocable living trust or a testamentary trust. A testamentary trust is created in a will and is only valid after the probate process is completed but doesn’t address potential incapacitation.

A revocable living trust is created and funded during your lifetime. It appoints a trustee to manage and distribute trust property after your death and can be changed or revoked at any time prior to your death or incapacity. As the grantor, you can serve as your own trustee, or you can appoint an individual or corporate trustee, such as Edward Jones Trust Company.

A key difference between a living and testamentary trust is that assets retitled in the name of the living trust don’t go through probate. Otherwise, the probate process can last several months (nine to 18 months from the date of death), delaying distributions and creating additional expense.

It’s also important to note that you can’t name guardians in a trust. For this reason, most who execute a living trust also have some form of a will.

Potential benefits of a trust:

• Can offer privacy, flexibility and creativity in how your assets will be distributed at death
• Professional(s) can manage money and make appropriate distributions for what parents deem most important
• Living trusts are administered without court intervention, helping to save time and money
• Trustee doesn’t have to be the same individual as the guardian of the person
• Can provide protections for minors, younger adults or beneficiaries with special needs
• Can prevent kids from receiving inheritance too early (state dependent, but in most cases, individuals reach majority at age 18 or 21)

Ensuring adequate assets

Overall, trusts can help provide financial safeguards for your children, particularly when it comes to helping ensure asset protection for their future and funding their education. As part of your estate plan strategy, your life insurance coverage and education savings plans should also be discussed with your financial advisor and revisited for possible changes to help ensure protection for your children.

Powers of attorney

With a financial power of attorney, you designate an individual to make financial decisions on your behalf with respect to your individually owned assets (for example, your investments). This may be broad, or you may limit the powers you grant. The document can also provide incapacity protection if you become disabled. Assets transferred to your living trust are generally not governed by the power of attorney, but instead, your trustees will have decision-making authority. A health care power of attorney allows you to designate an individual to make medical decisions on your behalf. Both financial and medical powers of attorney are foundational estate-planning documents recommended for all adults.

It’s important to note that if you have incapacity concerns and don’t have a power of attorney, a court guardian could be appointed. This could potentially result in decisions being made outside of your wishes and not necessarily in the best interest of your children.

A power of attorney can also allow children to serve as sole or co-agent at a time parents deem appropriate. Once a child turns 18, they can sign a power of attorney to have their parents or legal guardian help make medical and financial decisions for them should they become incapacitated.

How an Edward Jones financial advisor can help 

Working closely with your Edward Jones financial advisor and an estate attorney can help ensure your children are protected and well taken care of through your estate plan.